Beyond Inconvenient Portfolios, Investing in a Cleaner Future

Are countries worse than companies? For state-owned oil companies, they certainly are.

In a recent report, Carbon Majors Report (pdf), the CAI (the Climate Accountability Institute) and the CDP (formerly known as the Carbon Disclosure Project) analyzed the global greenhouse gas emissions from 1988 to 2015 and attributed them to fossil fuel producers, including both private corporations and state-owned enterprises. The results were staggering. The report found that the 100 largest producers of oil, gas, and coal are responsible for about 70% of all greenhouse gases emitted during the period, and over half of the emission can be attributed to just 25 companies! The top contributors include China’s state-owned coal producer, which is responsible for 14.3% of global GHG emissions, as well as the nationalized oil producers of Saudi Arabia (Aramco) and Russia (Gazprom), which have contributed 4.5% and 3.9% of global emissions respectively. Perhaps unsurprising, the top private company on the list is Exxon Mobil with 2% of all emissions, which until recently was headed by now US Secretary of State Rex Tillerson.

While the details of this skewed distribution of greenhouse gas producers may be news to many of us, most of the world is now highly familiar with the detrimental effects that greenhouse gases are having on our planet (check out An Inconvenient Sequel by former US Vice President Al Gore, and a Chair of Generation Investment Management, for an update on the last 10 years). While the Trump administration has been reversing many of the environmental regulations and commitments that were established by the Obama administration, investors are increasingly taking a stand against the destructive and short-term oriented corporate behavior that landed us in this mess.

To date, a wide range of institutions around the world, including retirement funds, sovereign wealth funds, college endowments, and city treasuries, have committed to divesting $5.42 trillion from fossil fuels in their portfolios. Perhaps even more notably, Wall Street is beginning to catch up, as major banks are reducing their lending to fossil fuel projects, and Larry Fink, the CEO of the world’s largest asset manager Blackrock, last year wrote a letter to major corporations around the world urging them to re-focus on long term value creation over short-term profits. Blackrock has voted its shares for more transparency of climate risks from Exxon Mobil, quipping “our patience is not infinite.”

This movement is not exclusive to multi-billion-dollar institutions. As an individual investor investing for the future, there are both important risks and exciting opportunities to consider. The first step is to understand what is in your portfolio today. Fossil fuel companies aren’t just posing moral complications but also real financial risks associated with these investments, including the potential of stranded assets as global demand for fossil fuels is reduced in favor of cleaner energy sources. Online tools such as fossilfreefunds.org allow investors to explore the exposure to fossil fuel companies in over 1,500 mutual funds and ETFs. With this information investors are able to make informed decisions about what to invest in and what should be avoided or even sold.

But divesting your portfolio from dirty companies is just one part of the equation. Equally important and even more exciting is discovering what to actually invest in. At HIP Investor, our 75,000 ratings have shown that lower future risk and higher future return are achievable, especially in fossil-free portfolios.

How will you invest in a cleaner future? Upcoming features in this series will highlight leaders and laggards, and what to consider for your portfolio.

This post is the first in a series of blog posts that over the next few months will explore different ways to invest in the transition to a low-carbon economy. Stay tuned to learn about what to look for when evaluating investments such as producers of solar and wind power technology, energy storage providers, and electric car manufacturers.

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Fabian systematically researches and analyzes the human, social and environmental impacts of companies, governments and non-profits issuing securities, which all garner a HIP Rating. Fabian co-architects and simulates investment portfolios to seek higher human impact and financial resilience. Fabian is an MBA graduate from San Francisco State University, with a focus on sustainable business practices and economic development. Fabian has been a top-10 worldwide finalist in Morgan Stanley Sustainable Investing Challenge. Prior to joining the HIP team, Fabian consulted with social enterprises in the U.S. and abroad. Fabian also teaches an undergraduate course in Sustainability & Innovation at San Francisco State University.

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